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U.S. Securities and Exchange Commission

SEC Releases Staff Report Describing Findings From Examinations of Select Pension Consultants


Washington, D.C., May 16, 2005 — The Securities and Exchange Commission´s Office of Compliance Inspections and Examinations today released the “Staff Report Concerning Examinations of Select Pension Consultants.” The Report follows an examination sweep into the practices of pension consultants, particularly focused on any conflicts of interest in their operations, and was initiated as part of the SEC´s program to identify and investigate risks in the securities industry.

During its examination, SEC staff reviewed documents and information from a cross-section of 24 pension consultants who are registered with the SEC as investment advisers. The examinations reviewed: (i) the products and services provided by pension consultants; (ii) the method of payment for such services; and (iii) the disclosure provided to their clients. The Report details the findings, including:

  • More than half of the pension consultants or their affiliates provided products and services to both pension plan advisory clients and to money managers and mutual funds on an ongoing basis;
  • A majority of the pension consultants have affiliated broker-dealers or relationships with unaffiliated broker-dealers which may provide a mechanism for money managers to compensate pension consultants, perhaps as a way to curry favor with the pension consultant;
  • Many pension consultants have affiliates that also provide services to pension plan clients; and
  • Many pension consultants do not adequately disclose material conflicts of interest arising from these practices to their clients.

Although investment advisers owe their clients a fiduciary obligation -- including to adequately disclose all material conflicts of interest -- some pension consultants appear to have erroneously concluded that they are not fiduciaries to their clients.

The Report contains recommendations to enhance pension consultants´ compliance programs to help ensure that the adviser is fulfilling it fiduciary obligations to its advisory clients. Office of Compliance Inspections and Examinations Director Lori Richards said: “It´s clear from our examinations that many pension consultants must do more to identify conflicts of interest in their activities, and to take steps to mitigate or eliminate those conflicts. We are releasing this Report to alert the pension consultant community to these findings, and, based on what we found, we urge pension consultants to take a hard look at their disclosure and make improvements. And, when a consultant holds itself out as providing unbiased, objective advice, that obligation must be met.”

The Report also raises important issues for plan fiduciaries who often rely on the advice and recommendations of pension consultants in operating their plans. In this regard, the SEC will be working with the Department of Labor to educate pension fund trustees and other plan fiduciaries about the issues raised by the findings in the Report, and will continue to work closely with the Department of Labor on issues of mutual interest.



Modified: 05/16/2005